How ‘open secrets’ wreck compliance

In Trinidad, at the recent Massy Business Integrity Framework Workshop, group senior VP and general counsel Angélique Parisot-Potter talked about “open secrets,” the ones that “everyone knows, yet no one talks about.”

In our anti-bribery compliance world, those open secrets abound.

As I often say, when it comes to graft, cooking the books, other forms of fraud, it takes a village to do it, and another village to look the other way.

We sometimes call those who engage in such acts as co-conspirators, and you can find them in plea bargains and other public regulatory filings (in my own case, there were plenty, even if unindicted). At the Massy event, Angélique focused on the village that looks the other way, what I think of as gatekeepers to open secrets.

I’ve written for the FCPA Blog about the link between accounting and anti-bribery violations. In the Alere enforcement action, for example, the SEC documented how Alere “improperly inflated revenues by prematurely recording sales for products that were still being stored at warehouses or otherwise not yet delivered to the customers,” adding that Alere “engaged in improper revenue recognition practices at several other subsidiaries.”

That kind of conduct is more common than many realize, especially in publicly listed companies. When I proffered to the SEC in 2007 about distribution stuffing — not writing down bad-debt and other accounting maneuvers — the SEC lawyers mentioned how often they’d seen those practices and others like them.

In thinking about those acts, first, someone in the organization had to place the orders, others had to manufacture them, book the sales, and then ship and store the products. Some or many of those in organizations like Alere, my former employer, and others like them, likely knew the open secrets about the conduct. But no one spoke up about it, at least not until the very end.

Sure, once the secret is out and the investigators show up, the gatekeepers might start talking. But by then it’s too late. The damage to the company is done.

In an anti-corruption setting, perhaps sales samples are misused as a way of unduly influencing officials. Again, samples had to be produced, shipped somewhere, and handed out to foreign officials as an inducement to win or keep business. With so many functions involved in those processes, there will be open-secret gatekeepers looking the other way.

I once circumvented trade controls to get armored products to coalition forces in Iraq that were understandably desperate for deliveries. While I thought of my law-breaking as virtuous (as awful as that sounds), there were those that conspired with me to bypass the controls, but there was another group that knew about it, and kept the open secret of my lawless behavior.

How do we get the gatekeepers of open secrets to speak up?

At the Massy event, Angélique and Wendy Addison, the CEO of SpeakOut SpeakUp, role played, where psychological “mind traps” and “negative automatic thoughts” were shown to inhibit speaking up. They addressed those issues to reduce the behavioral resistance to speaking up.

Angélique Parisot-Potter speaking at the Massy Business Integrity Framework Workshop

Any organization would do well to start talking about the issue of open secrets, by first acknowledging they exist. That conversation shouldn’t be limited to commercial personnel. It should include support functions, from finance to shipping, so that those former or would-be gatekeepers instead feel deputized and inspired to be ethics and integrity ambassadors.

There will always be impediments to speaking-up. “Complaining in this organization is futile and meaningless — nothing ever changes,” some will think. Or there’s the fear of personal and professional retribution. Or losing one’s friends at the company. Or simple thinking, it’s none of my business.

But as I learned once again at the Massy event, keeping an open secret is easier than talking about one. So, it’s a good idea for me to end this post the way I’ve finished other posts: It’s time to talk.

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Richard Bistrong, pictured above, is a contributing editor of the FCPA Blog. Hispopular real-life compliance training video, Behind the Bribe, produced in cooperation with Mastercard, was released in 2017. To request a demo of the full eleven-minute video or a licensing fee schedule, please click here.

He’s the CEO of Front-Line Anti-Bribery LLC and a contributing editor of the FCPA Blog. His award-winning anti-corruption training films co-produced with Mastercard — Behind the Bribe and From Beach House to Blackmail — are available to preview here.

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